First to this forum. This topic is interesting, seems I have a lot to say, and it's really hard for a Chinese to write English argument, it's so different a language and thinking

hope it not be rubbish.
Talking about navy and air force, China is catching up but still far too behind the US, to my understanding, currently we are keeping improving them but without mass produce these newly developed weapons, because they still not advanced enough.
Take navy for example, few new model ships were built more than five in last decade, but we constantly pushing new models out, but many of them built only one or two, and you can see the improvements between them. (like 051 -> 054,057). BTW, ten years is a long time for current China.
Another factor is the tech potential, for air force, although J-10 is still obsolete against the elite air forces, but for China it means finally it can do some whole thing without a total copy of Russian design, and that means it has a tech system that works and will continue to deliver next model, and this system is just really start functioning in recent years.
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To understand China's tech ability and why it will catch up quickly, we have to start with its history and culture. Traditionally, China won't put tech at a high priority, even oppress the development of it, because emperors needs his people calm down, fool and easy to rule. After thousands of years, it's become part of Chinese culture, devote youself in to R&D will be seen as pretty much alien, and you won't make any benefit from that.
This situation never been really changed even after the found of PRC in 1949, until
early 90s, and many Chinese could go around and see how far we have already been left out of the modern world. This to my mind is the real start of putting techology affares on the top of the desk, and the result is dramatic, see below.
China still is not capable of luanch a full scale compitation with US and EU, because it's still in its industrial revolution which had long been done in developed nations, and haven't enter a high tech era. But by focus on several key areas, it did made something extrodinary, since I'm a computer engineer, I'll take what I familiar with to prove it, and they represent the future:
1. Internet. Some US internet companies conquered many or even most place of this world, but not China, and that's not because censership. Like these:
Search engine:
iResearch-China Internet Research Center
Online shopping:
Chinese Online Shopping Market Estimated to Reach $8.2 Billion | RedlineChina
Online IM:
Analysys International-Analysys International Says Tencent QQ, MSN Messenger and Wangwang Ranked the Top 3 in China Concurrent Online IM Market in Q1 2007
2. Energy. The desire to oil is one of the most likely cause of any conflict in the next few decades, this is especially dangerous for China since we still not able to deliver serious military force to distance. But instead, in the compitation of new energy source, China is no behind of anyone:
Nuclear fusion power. This project linked below, I just heared TV news that it succeed in continues working for 400 second, a new world record. This is something China taken very serious with, which US doesn't.
People's Daily Online -- China sucessfully tests new thermonuclear fusion reactor
And the easier one:
Report: China to increase solar water heater coverage by 50% by 2010(09/20/07)
Many newly built apartments in China take solar water heater as stand equipment, and there is alot of them in stores.
For R&D, basically it's all about money, have the equipment you need, do enough expirements and learn from failure, will lead you success, this is how it works. In a cash rich situation, and facing the fact that the value of dollar is shrinking, China today is more than happy to spend it's dollars in education and R&D as soon as possible, which resulted in a massive expansion of its Universitys since 1999, it started with huge loan fron banks, but eventually everything was paid by goverment. And that gives me the oppurnity to learn computer and internet, although they are common now.
I saw some people said US achieved what China achieved in the past 4000 years, like Men Landing on Moon, Atomic Bomb, Micro Chip, etc. This is acceptable, but don't forget When you were doing all these, it's exactly the time China on its weakest. And there is an Chinese proverb :"30 years for the east bank of the river, 30 years for the west", which means no one sits on top for ever.
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Another thing worth noticing and proved and is proving what I said above is that in the past several decades, there are very few great artist and local bring up successful scientist in mainland China, because China at that time is somewhat like today's N.Korea, but based on what I wrote above, given another 10 - 20 years, people of recent generation will show their potential. In face there are already Chinese TV Series hot in surrounding nations.
I think this is a type of "Soft Power" which I believe is the central of our concentration now, and I think China is expecting to use this power to help solve some issue without a war in many casts in the future, just like what Hollywood is doing now for US, and that includes Taiwan. Imagining some day there are same amount of Chinese scientists win Nobel prize than Americans.
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In term of Hard Power, as I said in the beginning, for now China is still fall behind, but it is still enough to win the Taiwan war with US, and here is why:
1. US Military force, include National Missile Defense System, won't ensure you are safe from China's missile attack, and although China holds small amount of warhead, it has the potential to boost its nuclear arsenal in several months secretly. This means US won't attack mainland China in full scale, so Nulcear war is out of consider.
2. This is coast China, even China don't have any Air Force or Navy, its land based missile are enough to block the sky and sea around Taiwan, and level this land if have to. And based on reason 1, China can mass produce those missile for the job. China produce more than 1/3 of steel and 1/4 aluminum and serious proportion of electronics, and is the second largest car maker in the world. if 10 or more missiles fire at one F-18 or any ship, it's possiblity of survival can be ignored, and it's still very economy for China. Current occupied S-300 system have a range of 150km, imported from RUS, but China always good at copy.

Don't forget stealth plane had already been shot down and you don't have much of it, especially in Navy.
3. Some one would say that those missile will be destroyed on the ground, if that happen, US carriers will be anhiliated immediately, it's easy to launch enough ballistic missile to overwhelm the air defense of the fleet, and the cost is nothing compara to the cost of the carrier. Without carrier, US force will be seriously limited even with the base in Japan.
4. US Nuclear subs have not much to do in Taiwan Strait, because it's very shallow, a big Nuclear sub is a perfect target for any antisub weapon, don't ever think dive deep to escape, and that's why China still keeps it's diesel subs.
5. So if the air, surface and underwater will all be controled by us, I can't think why can't we send men there by ship, once ground force is there and set up new defense line, the war is pretty much over, because this war will only go as big as this, any further imagination is not very practical.
In the future, if China continues raising like now, the possibility of war between China and US or any Major force is getting lower and lower, especially if clean endless energy were created, we all have a happy life and noone will bother to start a war.